PortalPlayer posts Q1, vows to regain iPod biz

SAN FRANCISCO  PortalPlayer Inc. posted a GAAP net income of $6.5 million on a dramatic 62 percent increase in year-to-year revenue during the first quarter, the company said Monday (May 1). But PortalPlayer's stock took another beating after the company issued guidance that said second quarter revenue could be less than half what analysts were expecting.

PortalPlayer (San Jose, Calif.) posted first quarter revenue of $72.3 million, up from $44.5 million for the same period of 2005, but down sequentially about 7 percent from fourth quarter 2005 revenue of $78.2 million.

The $6.5 million GAAP net income, which equates to 26 cents per share, was down 17 percent from the $7.8 million GAAP net income that the company posted for the first quarter of 2005 and sequentially down a whopping 73 percent from the GAAP net income of $23.8 million that the company posted for the fourth quarter of 2005.

In a statement issued by PortalPlayer Monday, Gary Johnson, president and CEO, said the company completed a strong first quarter but was disappointed by the news that its new media processor was
not selected by Apple Computer Inc. for use in midrange and high-end flash-based iPod music players. An executive from Samsung Semiconductor Inc. has said that Samsung won that socket.

Since the Apple announcement, PortalPlayer has seen its stock price drop by 59 percent. The stock closed at $11.51 in Nasdaq trading prior to the earnings announcement Monday. The stock traded lower in after hours trading following the announcement, slipping below $10.75.

First quarter non-GAAP earnings or 40 cents per share exceeded analyst expectations. Consensus analyst estimates for the quarter called for earnings per share of 35 cents.

PortalPlayer said it currently expects revenue for the second quarter to be in the range of $30 million to $40 million. PortalPlayer expects to report anywhere from a loss of 3 cents per share to an income of 5 cents per share for the quarter, the company said. Consensus analyst estimates had called for revenue of $61 million for the second quarter.

"The market segments we are targeting are expected to see significant long-term growth and we have made substantial investments in developing technologies to enable highly integrated, feature-rich products to pursue them," Johnson said. "Over the past year, we have invested in integrating analog, advanced video and wireless capabilities. Consequently, we are now seeing solid results from our internal testing of various silicon implementations."

Fighting back

Meanwhile, during a conference call with analysts after releasing the results, Johnson vowed that PortalPlayer would “fight” to regain the lost iPod chip business at Apple. As reported, Samsung won the next-generation, iPod nano chip business at Apple, but the next-generation video iPod socket is said to be up for grabs.

Broadcom, PortalPlayer and Samsung are said to be competing for the next-generation, video iPod socket. In other words, Samsung did not win the entire iPod business at Apple  at least for now.

“We haven’t given up with that customer,” Johnson told analysts, referring to Apple. “We will fight back to win that socket.”

The PortalPlayer executive declined to comment on the reasons for losing the iPod nano chip business at Apple. “We believe our customer’s decision was very complex,” he said. It “covers a whole plethora of items.”

He also declined to comment if PortalPlayer is expected to win the next-generation video iPod chip business at Apple. “We don’t want to tip our customer’s hand,” he said.

PortalPlayer, which realizes more than 95 percent of its sales from Apple, is scrambling to diversify its product line. PortalPlayer is developing a chip for the notebook PC market, but the company is not expected to realize sales for that product line until the fourth quarter  or one quarter later than expected, according the company.

That product is dependent upon shipments of Microsoft Inc.’s next-generation operating software, dubbed Vista, which is also late to the market.